Sindh turns down withholding agent duty for motor vehicles

KARACHI: Sindh government stopped collecting withholding tax on vehicles on behalf of the Federal Board of Revenue (FBR) with the start of the current fiscal year of 2020/21, commensurate with the provincial cabinet decision, it was learnt on Wednesday.

Sindh Excise and Taxation Department collected withholding tax on registration and transfer of motor vehicles for the apex tax authority.

“Sindh has decided to discontinue the collection of withholding tax under section 231B and 234 on behalf of the FBR, collected by excise, taxation, narcotics control department government of Sindh with effect from July 1, 2020. This decision is taken in the light of the decision of Sindh cabinet held on February 19, 2020,” said a statement.

Sources in Regional Tax Office-II Karachi said the action of Sindh government is illegal and it would be dealt as per the section 165 of the Income Tax Ordinance, 2001.

An official said the provincial government only stopped the collection of withholding tax on motor vehicle registration. “The provincial departments are collecting withholding tax on many other heads including salary, government contracts, sale/purchase of immovable properties etc.”

Informed sources said a tax office conducted scrutiny of imported vehicles during the fiscal year of 2018/19 and identified a huge number of imported vehicles were registered with different names instead of names appearing on the import documents. The tax department obtained all the records of imported vehicles from customs authorities for detailed scrutiny. The tax office also asked the provincial excise department to provide same details.

However, on the basis of partial details provided by the provincial authorities the tax office identified huge discrepancies in collection of withholding tax.

“An estimated Rs10 billion was identified as recoverable amount from Sindh excise department,” said a FBR official. “An amount of Rs6 billion has been recovered through provincial account with the State Bank of Pakistan.”

Another show cause notice was sent in May for the recovery of remaining Rs4 billion. However, the excise department has not responded till date and rather it stopped the collection of withholding tax, the official added.

The official further said the income tax comes under the federal government domain as that is agreed under the constitution by all the provincial governments.

Further, the provincial departments are also working as withholding agents and as per law the prescribed entity cannot refuse the collection on behalf of the FBR, the official said. “In case of recovery and taking harsh measure against the provincial department, the secretary concerned may be arrested for denying the collection.”